When Markets Become Volatile, Keep Things in Perspective

When the stock market becomes more volatile, it can be easy to lose perspective.  Guard against allowing your emotions to drive your investment decisions!  In just the past few months, we’ve seen pessimism return to the markets – first with uncertainty surrounding the elections and now with concerns over the fiscal cliff.  As a result, the S&P 500 index declined by 8% from September 10 to November 15.  Now in the past two weeks it has risen by 4%.  This type of roller-coaster ride can be unnerving for some investors.  We continue to believe that Congress will come up with a solution to the fiscal cliff – the biggest question is when.  Thus, as uncertainty continues to plague the markets, remember that markets never move higher in a straight line.  Since February 2009, the S&P 500 index has fallen by more than 5% in six different months, but it has also risen by more than 5% in ten different months, and is up over 100% since its March 2009 low.  We expect market volatility to continue until there is compromise in Washington on future tax policy and spending cuts; therefore, it will be important for investors to stay balanced and not panic in the face of choppy markets. 

Now we better know the rules of the game

We live in a country where the transition of power (or retention of power) occurs in a fair and orderly fashion.  Compare this to much of the world where such is not the case.

The voters have spoken and in so doing have chosen the programs as offered by the administration of President Obama.  As advisors to families who have accumulated high levels of net worth, we believe that Obama policies will seek a larger share from our clients.  It is important to recognize this, and plan accordingly.

There is a window of time between now and December 31, 2012 where we still get to play by the “old” rules as to wealth transfer and income taxes.  This is an important opportunity and one that should not be missed.  We all have much to do before year-end.

Essential Wisdom for Today's Market

We’d like to share with our reader’s a short (4 minute) webcast released by Selected Funds.  We find this to be a particularly useful resource to help navigate today's investing environment. It covers the following three essential themes that have guided some of history's most successful investors:

Stay focused on the long term - Recognize that periods of low returns for stocks have historically been followed by periods of higher returns

Remain unemotional - Avoid self-destructive behavior by controlling emotions and adhering to your investment plan

Be disciplined - Though frustrating and disappointing, short-term underperformance is an inevitable part of building long-term wealth

Click on this link and then “Play” to view webcast: http://www.selectedfunds.com/investorcenter